In this week’s episode, Josh and Austin aim to better your financial future by talking about stock buybacks! The guys discuss what exactly a stock buyback is, why companies buy back their stock, how they go about doing so, and much more. There’s even a quick history lesson taking us all the way back to the year 1929. Listen in now to learn everything you need to know about stock buybacks!
Main Talking Points
[1:10] – What is a Stock Buyback?
[3:21] – Why Would a Company Want to Buy Back Stock?
[7:36] – Why You Would NOT Want to Buy Back Stock
[8:55] – How Does Buying Back Stock Work?
[11:58] – Dividends
[13:19] – Capital Gains
[14:31] – Dad Joke of the Week
[15:11] – The History of Stock Buy Backs
[21:43] – Examples of Stock Buy Backs
[22:43] – How to Invest in Share-Buyback-Focused Companies
[24:20] – Should You Invest in Share-Buyback-Focused Companies?
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to the Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to the Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. Today, we are going to better your financial future by talking about buybacks. Wow, that’s a lot of Bs, better, buy, back, better your future, buy back stock. Anyway, share repurchases, stock buybacks for publicly traded companies. That’s the topic of the day.
Josh Robb:
What always comes to mind is there’s that old Chili’s commercial. I want my baby back, baby back ribs. You know what I’m talking about?
Austin Wilson:
B-b-b-b-b-
Josh Robb:
But it’s like buy backs. If I was going to do a buyback I would just start singing that song.
Austin Wilson:
Is Chili’s publicly traded?
Josh Robb:
I don’t know.
Austin Wilson:
Are they under that umbrella of restaurant brands?
Josh Robb:
They’re a probably a grouping of like-
Austin Wilson:
Darden. Is it Darden?
Josh Robb:
I think with Ruby Tuesday’s. One of those. I don’t know, but buybacks. You want your buybacks, don’t you?
Austin Wilson:
We’re going to talk about buybacks.
Josh Robb:
You want your buybacks.
Austin Wilson:
I want them. I like them. I love them. I want some more of them.
Josh Robb:
That’s good.
[1:10] – What is a Stock Buyback?
Austin Wilson:
It is good. Let’s talk about them.
Josh Robb:
What is it?
Austin Wilson:
50,000 feet is how we usually roll, right?
Josh Robb:
Yes, start high.
Austin Wilson:
At the highest level, a share repurchase or a stock buyback… I’m going to use these interchangeably throughout the entire episode.
Josh Robb:
A share, repurchase and stock buyback, same thing.
Austin Wilson:
Correct. Same thing. We’re going to use them interchangeably. At the highest level, it is when a publicly-traded company purchases its own stock in the market using cash. That’s it. That’s pretty high level.
Josh Robb:
The end. Shortest episode ever.
Austin Wilson:
See you next week. This is really the opposite of a stock issuance. Once you go public, there’s a bunch of shares out there. All things equal, your shares stay the same. You have no more shares in, no more shares out. You’re trading the same amount of stock in the market forever. This is the opposite side of issuing stocks. For issuing stock, companies may want to put more stock out there and take the cash for that stock for an acquisition, for stock-based comp. They could do that. They could use it to raise capital for projects or operations. This is the opposite of that.
Josh Robb:
Okay. High level, if a company wants to raise money, they issue stock.
Austin Wilson:
Correct?
Josh Robb:
When they put stock out there, somebody buys it.
Austin Wilson:
They get cash.
Josh Robb:
The initial purchase, it comes to the company. If I put 1,000 shares out there and it’s $10 a share, I get $100,000 and… Is that right?
Austin Wilson:
10,000.
Josh Robb:
$10,000. That’s right. $10,000. I was rounding. I don’t know what was doing.
Austin Wilson:
Rounding way up.
Josh Robb:
$10,000, the company has its money.
Austin Wilson:
They can use that.
Josh Robb:
Now there’s 1,000 shares floating out there and when someone buys that or sells that on the second market, the company gets none of that. If it goes from $10 a share to $20 a share, the company doesn’t get any additional income that comes to them. They’re traded on the market as representation because you get some ownership, but the initial purchase is where the company gets it.
Austin Wilson:
Gets money.
Josh Robb:
Stock repurchase is going the other way. The company is spending money to bring some of those shares back to their company.
Austin Wilson:
Yes.
Josh Robb:
Gotcha.
[3:21] – Why Would a Company Want to Buy Back Stock?
Austin Wilson:
Yes. They’re repurchasing their stock that’s already out there. The next logical question is why? Why would a company want to buy back stock? Well, essentially, that company views it as the best use of their cash. One example that comes to mind is Berkshire Hathaway. They do not pay a dividend.
Josh Robb:
Don’t pay a dividend.
Austin Wilson:
… and we’re going to talk a little bit more about dividends versus buybacks later, but they have thought, for the last handful of quarters anyway, that their best use of cash, instead of using it to invest in new companies or do whatever was to buy back their own stock, which would they viewed as undervalued. They thought that their stock was trading at a discount to what they think it’s worth. A lot of companies may view that as their best use of cash, to go out in the market and buy back their own shares because reducing shares raises all of the per share metrics because the denominator, which is the shares outstanding, is smaller. Here’s an example for you, Josh. This math, I think, is more accurate than yours.
Josh Robb:
I was thinking $100 a share. I don’t know what my brain was doing.
Austin Wilson:
If a company, Josh Robb Inc., makes $10 in net income. You’ve earned $10 and you have 10 shares outstanding. Your earnings per share is $1 per share, right? If a company makes that same $10 in net income, but they bought back one of their shares, so there are only nine shares outstanding, their earnings per share is $1.11, or 11% higher. Each share is now more valuable. It’s a bigger chunk of the whole company. You used to own 10% of the company, your one share, if you held one of the 10. Now you own one of the nine, so you own 11% of the company. That is how some of the benefits of why you would want to do this because when you’re running your business based on financial metrics that are essentially out of per share most of the time, well, let’s just take some shares out and we get better metrics, even if our earnings are the same. Now, if you’re doing that and growing earnings, even better.
Josh Robb:
That’s really good.
Austin Wilson:
That’s even better. Another bonus is that valuations come down. If you look at a price to earnings ratio, very common ratio used in the market, generally viewed as the price per share of a stock divided by the earnings per share of a stock. These are both per share metrics. Well, the price usually stays the same when buybacks are happening, the price in the market, but the earnings per share then is going to go up because there’s less shares out there, which makes your price to earnings ratio, because the denominator’s getting bigger, lower. A lower price to earnings ratio is lower valuation, which is good for the market. That is another bonus there.
Another reason that companies may want to do this is to offset the dilution that occurs when shares are issued as part of stock-based compensation plans. A lot of big publicly-traded companies and specifically, I’m thinking of technology companies. It’s a huge part of technology companies’ compensation, but they will give great stock awards, or stock bonuses or stock options to their employees as part of their compensation plans. What that does is they’re creating new shares. They’re not going out to market buying new shares and then giving those same shares to their employees.
Josh Robb:
They’re making new ones.
Austin Wilson:
They’re making new shares, so if you want to just offset the stocks that you’re issuing for your employees, you do a stock buyback program as well and you can just keep your shares at even if you’d like. A lot of companies, that was the original purpose of this was just to at least offset the new shares that are being issued there. Another interesting thing is that in today’s near zero interest rate environment, companies can borrow money for about nothing. Then they can go out and buy their stock in the market with debt, and then that’s going to boost their earnings by as much or more than the small amount of interest that they’re going to pay, so that’s a good use of borrowed cash.
Josh Robb:
That’s crazy. That’s really just this unique low interest rate environment we’re in for that.
Austin Wilson:
Correct.
Josh Robb:
But all the other ones are true in really any interest rate environment. If you have cash and you think our stock price is below what we think it should be, it’s a good time to buy it.
Austin Wilson:
Absolutely.
[7:36] – Why You Would NOT Want to Buy Back Stock?
Josh Robb:
It’s the mindset there, okay. On the other side of the coin, that’s why you want to do a buyback is probably you just take those things and flip it, but why you would not want to do a buyback would be okay, our stock is overvalued. Should we be paying too much for those prices?
Austin Wilson:
Correct.
Josh Robb:
All right. Gotcha. Again, you see that as there’d probably be better uses of cash. In other words, I could reinvest in our company and get a better return for that instead of buying the shares, and reducing our valuations and getting a boost. I can actually do something in our company.
Austin Wilson:
Right. Going along with that, you can take that money and invest it in your company, or you can do an acquisition maybe. That may be a better use of your cash, but in general, if you can earn a higher return on invested capital by doing a project or having an acquisition than you’re going to get on buying back your shares, then it’s probably worth investing in the growth side of things. That’s why a lot of really early stage publicly-traded companies, they have no reason. They just went public. They have no reason to initiate a share buyback. They’re using all free cash that they’re getting-
Josh Robb:
To grow.
Austin Wilson:
… and they’re using that to invest in grow over time. Another reason that you might not need to do a stock buyback is the opposite side of the other thing we talked about. If they’re not issuing stock for anything-
Josh Robb:
If it’s not getting diluted, then why offset it?
Austin Wilson:
… then why offset it? That is maybe why a company would not want to do that.
[8:55] – How Does Buying Back Stock Work?
Josh Robb:
How does this work? Does the CEO pull up his E-Trade account and buy some shares? Is that what he does?
Austin Wilson:
He’s pushing buy and sell.
Josh Robb:
How’s this work?
Austin Wilson:
Company leadership, the executives or the board, they may bring it up as an option. Maybe shareholders have been talking about it. Then the board will vote, do we want to do this? Then they’ll decide on the dollar amount that they want to do this. If it passes, it can be disclosed as a share repurchase authorization is what it’s going to come across as. Most of these are using dollar amounts, not shares amounts. Then the company management can use it or not use it at any given point in time, whether they feel that it’s the best use of cash at that time, or if they believe their shares are undervalued, or if they’re overvalued, they can choose not to exercise it, but it’s a dollar amount and they don’t have to use it all at once. They can go buy 10,000 shares today because there’s a dip. They could not then for six months. They can pick and choose when they find that it’s the best use of their cash.
The board can then add additional funds to the existing buyback authorization, or they can just make another one periodically over time. Then the company will go into the open market. They’ll make these purchases as they deem necessary. They could, and this gets into a loop we’re not going to go into, but the company-
Josh Robb:
If you want to get a nosebleed.
Austin Wilson:
Yeah, exactly. This is going to give you a headache, so we’re not going to talk about it too much, but the company can use auctions too, where A, they can go into the market and buy the shares on their own. That’s how most share repurchases are done at market, or they can use auction things where they will send offers to shareholders. Typically, their larger shareholders first. Well, every shareholder’s going to get it, but the big ones are going to be the ones that have the most say because they have the most shares, but they can do auction processes where these shareholders can then say, “Okay, I see you’re buying back shares now and here’s my offer. I want you to buy my shares if the offer reaches X price.” They’ll compile all the offers together and if you meet the threshold, then you’ll get your shares repurchased. There are a lot of crazy nuances that go on between that and that could be another topic for another day.
Josh Robb:
But the idea there is there’s a lot of flexibility. It’s not like they say, “Hey, we want to buy some shares back.” Then the next day, they’re buying. It’s a process and there’s flexibility in that if the market changes. If they were going to do a share buyback and then COVID happened, they went, “Hold on. We may get a better buy opportunity if we wait a little bit.”
Austin Wilson:
We’re going to talk about that a little bit more. The alternative is dividends.
Josh Robb:
Yes, so there’s other ways to use your money.
Austin Wilson:
It’s another way to use your cash to return cash to shareholders, but dividends are…. While you said buy backs, very flexible. You can really use them or not use them and do whatever you want. Dividends, once you’ve start paying one, you’re pretty much stuck paying one forever or your stock’s going to suffer if you cut it or eliminate it. You’re expected to do that. Buybacks can be used when appropriate or not, whenever the company needs cash or doesn’t need cash.
[11:58] – Dividends
Josh Robb:
All right. So, you mentioned dividends. These are the two primary ways of increasing shareholder value. One is through direct money payments to shareholders in the form of dividends, which is cash, or increasing their ownership percentage by share buybacks. Walk me through that.
Austin Wilson:
Really, you just hit the nail on the head. A buyback, you can increase their ownership. They hold more of the company or if you’re actually buying back their shares, you’re giving them cash anyway, or you give them actual cash through a per share dividend payment. Now, one thing to keep in mind, these are both taxable events and you will either, depending on what it is, occur short term or long-term gains or losses, if you’re talking about the share repurchase or dividends taxed at income. That’s a different tax bracket altogether. In taxable accounts, that is a key thing to keep in mind. These are both taxable events, but due to the fact that most shares that are held in taxable accounts will likely qualify for capital gains rates, buybacks are often viewed as better for individuals when it comes to taxes because you’re getting lower capital gains rates than you are higher dividend, which is income tax brackets. Keep in mind, that’s only for taxable accounts. IRAs, 401ks, ROS that’s does not apply at all.
[13:19] – Capital Gains
Josh Robb:
We can talk about capital gains. If I am a holder of a company and they initiate a share buyback, but I don’t participate. Do I experience taxes on that?
Austin Wilson:
No. Only if you are-
Josh Robb:
Only if I’m in the share buyback. If I say I will do it, I’ll sell my shares to you, that’s when you’re-
Austin Wilson:
Well, you may… Indirectly, you’re going to incur, maybe more gains over time because your ownership of the company is higher, which means your representation of profits and cash flows are higher, which means that the stock will probably go higher over time, so indirectly. You are facing no direct impact tax wise.
Josh Robb:
I just wanted to be clear on that because the idea is if I’m a long-term holder share buybacks are actually a better deal for me-
Austin Wilson:
Absolutely.
Josh Robb:
… because if I’m just talking taxes is if I’m the long-term holder, I get higher percentage of ownership without taxing me at all. Whereas, a dividend, I get income, but I have to pay some tax on that along the way. Between the two, for someone who doesn’t plan on selling, it’s not a taxable event, it’s in fact, beneficial in that my ownership just went up without me doing anything.
[14:31] – Dad Joke of the Week
Austin Wilson:
Absolutely. So, Josh?
Josh Robb:
Yes.
Austin Wilson:
It’s Thursday.
Josh Robb:
Thursday.
Austin Wilson:
Thursday means that you owe me a dad joke and I’ve been waiting since last Thursday for this.
Josh Robb:
Oh, man. It’s been a long wait. Okay. What do you call a bee that cannot make up its mind?
Austin Wilson:
Hmm… It’s unbelievable. I don’t know.
Josh Robb:
A maybe.
Austin Wilson:
A maybe.
Josh Robb:
A maybe.
Austin Wilson:
That’s a good one. That’s a classic dad joke.
Josh Robb:
That’s a good one.
Austin Wilson:
That’s a classic dad joke. While that was super exciting and probably the highlight of this episode.
Josh Robb:
It maybe is.
[15:11] – The History of Stock Buy Backs
Austin Wilson:
It maybe is. See what you did there. Let’s dig into the history of share buybacks because-
Josh Robb:
I’m sure it’s exciting.
Austin Wilson:
… this the part that you’re going to want to take your coffee and sit down for because I’m going to put some numbers out there. Let’s just rewind. We’re going to rewind almost a hundred years, about 90 years. Few companies were buying or selling their own stock prior to the market meltdown in 1929. Few companies did that. It really was not a big practice.
Josh Robb:
There was a pullback in the market in 1929?
Austin Wilson:
Just a little one. Multiple, 10% plus, plus, plus.
Josh Robb:
You can add each day.
Austin Wilson:
Let’s add those 10%s up. We’re talking… What was it? Sixty some percent?
Josh Robb:
60 some.
Austin Wilson:
80%.
Josh Robb:
It was a lot.
Austin Wilson:
Anyway, market plummeted.
Josh Robb:
Dropped.
Austin Wilson:
Let’s just say that, but after that, many companies were attempting to prop up their plummeting share prices by buying their own shares because remember, when there’s more buying than selling, prices are going to rise. If the companies are going in, buying their own stock, they could kind of put a little floor in the falling of their prices. This practice was frowned upon by Wall Street, by individuals, by the press. A famous New York Times article from 1932 said that stock buybacks deprived companies from cash and diverted executives from solving actual business problems by allowing them to try and play the wild swings in the market, which were crazy right then, to their own gain.
Josh Robb:
Interesting. No one liked it.
Austin Wilson:
Not a popular… Well, companies liked it, but it was not popular for anyone who was not working at those companies.
Josh Robb:
Individuals, Wall Street, the press. None of them liked it.
Austin Wilson:
Flash forward a couple of years, 1932, the governing committee of the New York Stock Exchange issued a directive urging companies not to buy or sell their own shares.
Josh Robb:
That worked?
Austin Wilson:
Nope. That did nothing. It was a directive.
Josh Robb:
Oh, so yeah.
Austin Wilson:
That was not a binding agreement.
Josh Robb:
Just a suggestion.
Austin Wilson:
Flash forward another year. 1933, the New York Stock Exchange got more aggressive. They forced companies to disclose their plans for share repurchases.
Josh Robb:
I think that’s a good step in that… You talk about different regulations. When large entities have the ability to move things, disclosures are nice.
Austin Wilson:
Disclosures are nice.
Josh Robb:
Disclosures are nice.
Austin Wilson:
The next year, 1934, Congress passed the Securities and Exchange Act. That’s been around since 1934. It’s a big deal in the industry. This act was so broad and vague that it actually made buybacks seem like market manipulation, which in some instances, it actually was. It was just so vague that you pretty much were talked out of it because it could seem like you were manipulating the market and then you’re going to be penalized extremely harsh.
Josh Robb:
I’m sure nobody ever manipulated the market.
Austin Wilson:
Exactly. It’s never happened.
Josh Robb:
Nope.
Austin Wilson:
A couple more decades go by. Then in the 60s, there was a paper company called Georgia Pacific. They were buying up other firms like crazy. They were using its company stock to fund those purchases. However, the deals would only go through if their stock reached a certain level. Then they were incentivized to prop up their shares, which they did through purchasing their own stock and bidding up the price, essentially. The SEC took the company to court and it lasted years, but the law was so vague they could not really distinguish was it completely illegal or was the company just required to have to disclose their plans? There was really not a lot of resolution to what happened there. Well, then throughout the 70s, it was just really unknown, so it really didn’t happen a whole lot.
Then came President Ronald Reagan in the early 80s. He brought a great deal of deregulation to the financial industry, to the economy in general, but part of that was essentially sweeping this debate under the rug. In 1982, the SEC used Rule 10B-18. It’s a good thing to remember, 10B-18.
Josh Robb:
10B-18. That’s important.
Austin Wilson:
No one’s ever going to ask you for that. Nope, but that created a safe harbor for companies to pursue buybacks without the risk of prosecution that they faced under the 1934 law. To this day, companies really don’t face much scrutiny at all when it comes to buying back shares with the exception of banks.
Josh Robb:
Banks.
Austin Wilson:
Banks, their regulations as an industry have been severely changed since the global financial crisis because well, they weren’t set up well. They were not run conservatively and they were not holding enough capital to meet all of their obligations.
Josh Robb:
Too risky.
Austin Wilson:
They were too risky. Since then, there have been a lot of increased requirements for banks to keep certain amounts of capital on hand should there be a need to fulfill their obligations. Well, that is why financials, specifically, have to go through periodic stress tests and then their buybacks and dividends must then be approved by the SEC.
Josh Robb:
If they want to, like we talked about before, increase their dividends. I’m doing a 30 cents per share dividend, I want to do 32 cents. They got to go get the SCE and say, “Hey, can I increase my dividend by two cents?” Then they say yes or no and then same is true. They say, “Hey, I got 100 million dollars of cash I’m sitting on here. I want to buy some shares back. Can I do that?” Then they’ll say, “Okay, based on your stress test, you can do 30 million of that, 100 million. The rest, you need to keep on hand for emergencies.”
Austin Wilson:
Exactly. Generally speaking, these stress tests have continued coming out of the global financial crisis all the way to today. Banks know what the regulations are. They know what the requirements are. They are running themselves a lot more conservatively than they were and at least in the handful of years, there have not really been any pushback on…
Josh Robb:
They’re asking things in reason.
Austin Wilson:
Yes. They were asking things in reason. The caveat being in COVID, it was anticipated that banks were going to have a tough time. Interest rates are low. That’s how they make a lot of money. It was anticipated that they would have a tough time, so there were some restrictions on dividend increases and buybacks. That was not really due to the bank’s financial situation. That was placed as a safeguard and those have even since been lifted. Banks in great shape. Now they’re in increasing buybacks and increasing dividends and it’s kind of back to normal, but banks are the one area of the market where you do have a little bit of regulation there. Generally speaking, you have to talk about Apple, Microsoft, whatever, they can do whatever they want. These companies have-
Josh Robb:
Paper companies.
Austin Wilson:
… billions.
Josh Robb:
Can do whatever they want.
Austin Wilson:
These companies, they’re printing money, the paper companies.
Josh Robb:
That’s right. They’re printing something.
Austin Wilson:
They’re printing something. That is a history of buybacks.
[21:43] – Examples of Stock Buy Backs
Josh Robb:
Interesting. Give me some examples here. You mentioned Berkshire Hathaway. They’re known for using their cash to buy back shares when they feel like there’s value there. What else?
Austin Wilson:
Some other companies that are just known as big share repurchase companies, Apple is the number one share repurchase company in the world.
Josh Robb:
Are they really?
Austin Wilson:
They’ve repurchased tons of shares over the years. Microsoft, Oracle, Starbucks, JP Morgan, all these companies are known as pretty share buyback heavy companies. Now, notice on that list, all of those companies actually pay dividends also. Now, also companies like Google and Facebook, they do not pay dividends and they do a lot of share repurchasing as well. It’s a very popular thing. It’s probably more common to find companies that do a stock repurchase than that don’t at this point.
Josh Robb:
Because again, it’s just extra cash, no opportunity at this point.
Austin Wilson:
Flexibility.
Josh Robb:
I don’t want to hold it, I want to do something with it to enhance my shareholders, buybacks.
[22:43] – How to Invest in Share-Buyback-Focused Companies
Austin Wilson:
Let’s talk about some ways we can invest in this trend, in these shared buyback-focused companies. Number one, we just talked about individual stocks. Those are great companies that you could. I’m not saying you should. Talk to your advisor, but you could invest in that do great share repurchases. You could also buy ETF’s focus on the theme. The iShares US Dividend and Buyback ETF, is DIVB is the ticker. There’s another one called the Invesco Buyback Achievers ETF. It’s PKW.
Josh Robb:
Achievers.
Austin Wilson:
I don’t know where they got PKW out of that, but that’s just lazy work.
Josh Robb:
That’s lazy work.
Austin Wilson:
You could totally come up with a better ticker. Another one is the Spyder S&P 500 Buyback ETF. That’s SPYB. That one makes sense.
Josh Robb:
Buyback, SPY.
Austin Wilson:
Those are some ETFs. Flip page, mutual funds. We’ve talked what are the differences between ETFs and mutual funds? We’ll link to that episode in the show notes, but there is America First large cap share buyback mutual fund. Ticker, SBQAX. That is a mutual fund if you’re more interested in that.
Josh Robb:
You can’t be as cool on those tickers.
Austin Wilson:
They all have to end in X and they all have to have five letters. Mutual funds, your hands are tied. There’s no-
Josh Robb:
If you get one, then you’re really on your game.
Austin Wilson:
There’s no excuse to have a lame ticker if you’re an ETF.
Josh Robb:
Come on.
Austin Wilson:
I mean, although some of the good ones are taken.
Josh Robb:
But still-
Austin Wilson:
You can have up to four or five letters.
Josh Robb:
… there’s flexibility.
Austin Wilson:
You have some good options.
Josh Robb:
Come on, PKW. Get your game on.
Austin Wilson:
Josh, here’s the question. It all boils down to this. This is why I brought you on this episode.
Josh Robb:
That’s why I’m here, besides the dad joke.
[24:20] – Should You Invest in Share-Buyback-Focused Companies?
Austin Wilson:
Besides the dad joke. The question is should… Now, I did not say could. I mentioned what you could do. Should you, or the listener in general, invest in companies that buy back their shares?
Josh Robb:
Well, like you mentioned, there’s a lot of companies that do this periodically because, again, it’s not like every quarter, Apple’s announcing a share buyback, but chances are if you had a diversified portfolio, you might own companies that do share buybacks periodically.
Austin Wilson:
I would say it’s quite likely. If you hold any US equity fund or ETF-
Josh Robb:
You probably do. Chances are you probably own this, but if you were like, “Hey, I really think this idea is awesome. I want to own more,” it really depends on your goals and situation. Like everything else, it’s a strategy, a tool that companies can use to better enhance their overall returns to their shareholders. Is it great? Yeah, it can be, depends on what your objectives and goals are. Owning stock is riskier than owning fixed income. We’ve talked about that in the past. This is not something fixed income has anything to do with. It probably fits somewhere in your equity side of things in that you want companies that are doing the best with the money they have, but should you own it directly? I mean, those ETFs and mutual funds you mentioned, it really just depends. If that’s a strategy that fits within your overall goals, then sure.
Austin Wilson:
Alternatively, your goal could be more income-oriented.
Josh Robb:
Yes, with dividends.
Austin Wilson:
If that’s the case, again, this is dependent on your situation, but a more dividend-focused cash distribution to shareholder company, or ETF or strategy in general could be a better fit for you.
Josh Robb:
If you have a dividend paying stock that also does share buybacks, your dividend will go up as well because the dividend per share, where there’s fewer shares… If they do a certain amount of dividend payments every quarter-
Austin Wilson:
If they’re allocating dollars for their dividends, then yes. It’s actually kind of tricky.
Josh Robb:
It’s usually kind of tricky.
Austin Wilson:
Well, they’re usually using a set pennies per share that typically… You think it would, but it actually does not.
Josh Robb:
It stays flat. If you get 50 cents a share-
Austin Wilson:
Your share’s worth the same.
Josh Robb:
You still get 50 cents a share and you don’t have any more shares. Interesting.
Austin Wilson:
If they keep their dividend the same, they’re saving.
Josh Robb:
Then they save on dividends. Oh, man. These companies are sneaky.
Austin Wilson:
They’re tricky.
Josh Robb:
All right, but really it comes down to having that discussion with your advisor, talk to them and say, “Does this work for me? Do I have some exposure to this? Do I need more exposure?” Talk to your advisor. If you don’t have an advisor, give us a call. If you want to find out how we operate, what we do. We understand what is happening here. Again, it’s part of a diversified portfolio. Do you want to own companies that do share buybacks? Sure. Yeah, that makes sense as long as it meets your objectives.
Austin Wilson:
If you’re interested, there is an invest with us tab on our website.
Josh Robb:
That’s right.
Austin Wilson:
Check it out and you will be able to get ahold of us. We’d be happy to talk to you. Two things I would like to remind you of at this point in the episode is number one, it is not too late to enter our second half stock draft competition. You can actually enter all the way up until the end of the year when it ends.
Josh Robb:
That’s right.
Austin Wilson:
A lot of people have lost money and have not recovered to break even. If you started now, you would actually be a little bit of a headstart.
Josh Robb:
Yes, you’d be beating me by quite a bit.
Austin Wilson:
It’s really fun. I check it.
Josh Robb:
Good times.
Austin Wilson:
It’s a good time. It’s fake money. 100,000 fake dollars. You can have a lot of fun with 100,000 fake dollars.
Josh Robb:
I’ve lost a lot of fake money.
Austin Wilson:
That’s okay.
Josh Robb:
That’s okay.
Austin Wilson:
It’s still early. Josh. You can still storm back. You smoked me last year.
Josh Robb:
Got lucky. We already talked about that.
Austin Wilson:
It’s all good. Number two, as always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. These are overarching investment themes to keep you on track to meet your long-term goals. We don’t specifically mention buybacks, but as we mentioned, a lot of the companies that you are probably invested in or any one would probably be invested in are doing that. It’s just a good thing to have, a little knowledge nugget for you there. Check it out. It’s free on our website. Josh, how can people help us grow this podcast?
Josh Robb:
Like always, make sure you’re subscribed to the podcast, that way you get the most recent episode every Thursday straight to your device.
Austin Wilson:
We haven’t missed one yet. Every Thursday.
Josh Robb:
Doing well, leave us a review on Apple Podcasts. It helps us rank higher, so more people can find us. If you have any questions or would like to just find out what’s going on with share buybacks, you want some more clarity, shoot us an email at hello@theinvesteddads.com. Then if you know somebody who’s like, “Share buybacks are my jam. They’re the coolest thing in the world,” share this episode.
Austin Wilson:
Or they hate them.
Josh Robb:
Or maybe they do and then we can tell them why they maybe shouldn’t hate them. Share this episode with them.
Austin Wilson:
All right. Well until next Thursday, have a great week.
Josh Robb:
Talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to the Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.
